Saturday, 27 July 2019

Whether Cheque bounce case is maintainable if unregistered partnership firm is not made accused?

 An interesting issue has come up for consideration before this
Court. The question involved in this case is whether an unregistered
Partnership Firm can also be brought within the purview of Section 141 of
the Negotiable Instruments Act, and in such cases whether the Partnership
Firm must be made as an accused along with the other partners, in order to
maintain a complaint for an offence under Section 138 of the Negotiable
Instruments Act ?
 Section 141 of the Negotiable Instruments Act deals with the
concept of vicarious liability, wherein for the offence committed by the
Company or a partnership firm, the directors or the partners, as the case
may, are deemed to be guilty of the offence when it is shown that they are
in charge of and responsible for the conduct of the day-to-day affairs of the
business or the firm, as the case may be. While interpreting the provision,
the Hon'ble Supreme Court has categorically held that the complaint cannot
be maintained against the directors of the Company, without making the
company as an accused person. This concept has been extended even for
Partnership Firms. The registration or non-registration of the Partnership
Firm will have no bearing insofar as 141 of the Negotiable Instruments Act is
concerned.
20. In view of the above discussion, this Court is not in agreement
with the submissions made by the learned counsel for the respondent. In
this case admittedly, the cheque was given in the name of the Partnership
Firm and after the cheque was dishonored, no statutory notice was issued to
the Partnership Firm, and the Partnership Firm was not made as an accused
in the complaint. Only the partners have been shown as accused persons in
this complaint. Such a complaint is unsustainable and not in accordance

with Section 141 of the Negotiable Instruments Act and the law laid down
by the Hon'ble Supreme Court. 
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 23.07.2019
CORAM
MR.JUSTICE N.ANAND VENKATESH
CRL.O.P No.13147 of 2015
and Crl.M.P.Nos.1 and 2 of 2015

Rangabashyam Vs. Ramesh 

ORDER
This petition has been filed seeking to call for the records on the file
of Judicial Magistrate No.I, Villupuram in C.C.No.550 of 2012 and quash the
proceedings.

2. An interesting issue has come up for consideration before this
Court. The question involved in this case is whether an unregistered
Partnership Firm can also be brought within the purview of Section 141 of
the Negotiable Instruments Act, and in such cases whether the Partnership
Firm must be made as an accused along with the other partners, in order to
maintain a complaint for an offence under Section 138 of the Negotiable
Instruments Act ?
3. The brief facts of the case are that the respondent has filed a
complaint against the petitioners for an offence under Section 138 of the
Negotiable Instruments Act on the ground that he was a partner in the firm
named as 'Laxmi Agencies' and he was compelled to retire from the
Partnership Firm. There were certain amounts due and payable to the
respondent and towards the discharge of the said liability, the accused
persons namely the petitioners issued a cheque for a sum of Rs.3,00,000/-
(Rupees three lakhs only). The said cheque was dishonored on the ground
of in-sufficiency of funds and after the issuance of the statutory notice, the
respondent proceeded to file a complaint against the petitioners.

4.The petitioners who are shown as accused persons in this
complaint, have filed this petition to quash the proceedings primarily on
the ground that the cheque in question was drawn in favour of the
respondent only on behalf of the partnership firm. Therefore, the complaint
cannot be maintained without issuing the statutory notice to the
partnership firm and making the partnership firm as an accused in the
complaint.
5. The learned counsel for the petitioners submitted that the
provisions of Section 141 of the Negotiable Instruments Act, which deals
with offences by Companies, will equally apply to the partnership firm also
by virtue of the explanation given under the said provision. The learned
counsel further submitted that the Hon'ble Supreme Court has now settled
the law to the effect that the complaint under Section 138 of the
Negotiable Instruments Act, cannot be maintained against the directors of
the Company, without making the Company as an accused. This law has
now been extended to Partnership Firm also. Therefore, the learned counsel
submitted that without arraying the firm as an accused in the complaint,
the partners cannot be prosecuted by the respondent since admittedly the

cheque was issued by the Partnership Firm represented by its partners.
6. The learned counsel appearing on behalf of the respondent
submitted that Section 141 of the Negotiable Instruments Act, will apply
only to those Partnership Firms which satisfies the requirements of a legal
entity. The learned counsel submitted that if the Partnership Firm is not
registered, it cannot be recognized as an entity. In the present case, the
Partnership Firm has not been registered and therefore the respondent has
proceeded to file the complaint as against the petitioners who were the
partners in the firm. The learned counsel submitted that since the
Partnership Firm has not attained the status of a legal entity, there is no
requirement to make the Partnership Firm as an accused and the complaint
is maintainable as against the petitioners.
7. The learned counsel for the petitioners in reply to the submissions,
submitted that the registration or non-registration of a partnership firm is
immaterial insofar as Section 141 of the Negotiable Instruments Act, is
concerned. Section 69(2) of the Partnership Act cannot be read into Section
141 of the Negotiable Instruments Act. In order to substantiate his
submissions, the learned counsel for the petitioners relied upon the

Judgment of the Kerala High Court in the case of Abdul Gafoor Vs
Abdurahiman reported in 1999(4) Crimes 98 and the Allahabad High
Court in the case of Gurcharan Singh Vs. State of U.P. and another
reported in 2002(4) Crimes 165.
8.This Court has carefully considered the submissions made on either
side.
9.There is no dispute on facts and therefore this Court will straight
away venture into the legal issue that has been raised in this case.
10. The Hon'ble Supreme Court in Aneeta Hada .Vs. Godfather
Travels and Tours Private Limited reported in 2012(5) SCC 661, has now
settled the law to the effect that a complaint under Section 138 of the
Negotiable Instruments Act, cannot be maintained without issuing a
statutory notice to the Company and without adding the Company as an
accused, only as against the directors of the Company. The same law has
been made applicable even to the partnership firm in N.Elangovan .Vs.
C.Ganesan reported in 2014(4)MLJ (Crl) 517.

11. The issue involved in this case is that the partnership firm is an
unregistered firm and therefore according to the learned counsel for the
respondent, the firm need not be made as an accused and the complaint
can be filed straight away against the partners.
12. Section 69(2) of the Indian Partnership Act, 1932 deals with the
effect of non registration. Section 69(2) Act, specifically provides for a bar
in maintaining a suit where
(i) Suit is by an unregistered firm
(ii) Suit is to enforce a right arising from a contract
(iii) Suit is filed against a third party and
(iv) persons suing are not shown in register of firms as partners
in firm.
It is to be borne in mind that the bar contemplated under Section
69(2) of the Indian Partnership Act will come into play only when the Suit is
filed to enforce a right arising from a contract against a third party.
13. This Court had an occasion to deal with a case where this bar
Section 69(2) of the Indian Partnership Act, was sought to be invoked while
enforcing a common law right. This Court dealt with the issue in detail and

held that the bar Section 69(2) of the Indian Partnership Act, will not apply
while enforcing a common law right. The relevant portion of the Judgment
is extracted hereunder.
"46.In M/s. Haldiram Bhujjawala and
another v. M/s. Anand Kumar Deepak Kumar and another,
AIR 2000 SC 1287, the Hon'ble Supreme Court reiterated
the position that a Suit by an unregistered firm is not
barred under Section 69(2) of the Partnership Act if a
statutory right or a common law right is being enforced.
47. In S. Prakashchand v. Sha Harakchand Misrimull
and 3 others, 2003 (2) LW 740, this Court observed as
under:
“9. Section 69(2) of the Act contemplates three conditions
namely (i) no Suit to enforce a right arising from a contract
shall be instituted on behalf of a firm against third party,
(ii) unless a firm is registered, and (iii) and the persons
suing are or have been shown in the Registrar of Firms as
partners in the firm.
10. Before analysing the first condition namely “arising out
of a contract”, we look into the other two conditions.
Admittedly, the plaintiff firm was registered with the
Registrar of Firms as such the second condition is complied
with.
11. The third condition namely “persons suing are or have
been shown in the Registrar of Companies as Partners in
the firm” is concerned, that the first and second plaintiffs

name were admittedly found in the Registrar of Firms. The
plaintiffs 3 and 4, though became partners of the company
as early as on 22.10.1979, their names did not find place in
the said register. Pending suit, their names were
incorporated as per Section 59 of the Partnership Act.
Section 59 contemplates that when the Registrar is
satisfied that the provisions of Section 58 have been duly
complied with, he shall record an entry of the statement in
a register called the Register of Firms, and shall file the
statement. Under Section 58 of the act, necessary
application has been forwarded by the plaintiffs firm
intimating the date when the partners namely plaintiffs 3
and 4 joined the firm.
13. The first condition that “enforcing a right arising out of
a contract” is concerned that the contract even by the
unregistered firm referred to in Section 69(2) must not
only be one entered into by the firm with the third party defendant
but must also be one entered into by the
plaintiff firm in the course of the business dealing with the
plaintiffs firm with such third party defendant. The
Hon'ble Supreme Court has decided in “Haldiram
Bhujjawala v. Anand Kumar Deepak Kumar, AIR 2000 SC
1287” that the real crux of the question is that the
legislature, when it used the words ‘arising out of a
contract’ in Section 69(2), it is referring to a contract
entered into in course of business transaction by the
unregistered plaintiff firm with its customers/defendants
and the idea is to protect those in commerce, who deal

with such a partnership firm in business. Such said third
parties, who deal with the partners ought to be enabled to
know what the names of the partners of the firm before
they deal with them in business”. It is evident that Section
69(2) is not attracted to any and every contract.
14. Admittedly, in this case, the Suit is not for enforcement
of any right arising out of a contract entered into by or on
behalf of the plaintiffs firm with the defendant in the
course of business transaction. Moreover, Section 69(2)
does not bar a Suit to enforce common law right even if
the firm is unregistered on the date of the Suit. Hence, the
Suit is not barred by Section 69(2) of the Partnership Act.
With the result, all the other substantial questions of law
are answered in favour of the Respondents/Plaintiffs.”
48. In the above decision, a similar contention as
raised by the revision petitioner before this Court has been
raised and this Court held that the bar contemplated under
Section 69(2) of the Partnership Act will not get attracted
if the Suit is being filed even by an unregistered firm to
enforce common law right.
52. The bar contemplated under Section 69(2) of
the Act will come into picture only when the Suit is filed to
enforce a right arising from a contract against a third
party. In the present case, the Suit has been filed for
recovery of possession of A and B schedule properties and
to pay damages for use and occupation. If that being so, as

rightly pointed out by the learned Senior Counsel for the
respondent, the Suit is to enforce a statutory right
available to the plaintiff under the provisions of the
Transfer of Property Act and the Suit is not the one to
enforce a right arising from a contract entered into
between the parties. The decisions relied on by the learned
Senior Counsel for the respondent would make it very clear
that Section 69(2) being penal in nature should be strictly
construed and if strictly construed, Section 69(2) will get
attracted only when the Suit is filed to enforce a right
arising from a contract and not to a Suit filed to enforce
any common law right. If the Suit is for enforcing a
common law right, then, even an unregistered firm can do
so and in that event, Section 69(2) will not get attracted.
In the present case, it is no doubt as stated that the suit is
only for recovery of possession and therefore, it is not a
Suit to enforce the terms of the contract entered into
between the plaintiffs and defendants. Then, such a Suit
could be filed even by an unregistered firm. Admittedly,
the plaintiff is a registered firm. When such a Suit could be
filed even by an unregistered firm, there is no substance in
the contention of the revision petitioners that the Suit is
to be rejected as the said Thiru Vinodkumar Fateh Puria is
not a partner of the firm and his name is also not found
place in the Register of Firms".
14. This Court had taken note of the above judgment only to
reiterate the settled position of law that the bar of Suit insofar as an

unregistered firm is concerned will confine itself only to enforcement of a
right arising from a contract. This cannot even be extended for enforcing a
common law right. In the present case, this Court is dealing with a
provision under the criminal law wherein, the learned counsel for the
respondent is seeking to justify the fact that insofar as an unregistered firm
is concerned, it is not necessary to make the firm as an accused since it
does not qualify the status of a legal entity. It is trite law that when the
provisions of criminal law are interpreted, the concept of strict construction
will apply. Therefore, this Court cannot read the provisions of Section 69(2)
of Indian Partnership Act into the provisions of Section 141 of the Negotiable
Instruments Act.
15. It will be relevant to rely upon the judgments cited by the
learned counsel for the petitioners.
16. The first judgment that was relied upon by the learned counsel
for the petitioners is the case of Abdul Gafoor Vs Abdurahiman reported
in 1999(4) Crimes 98, referred supra. The relevant portions in the
judgment is extracted hereunder.

"3.The counsel for the revision petitioner submitted
that the 1st respondent being an unregistered partnership
firm, the above prosecution is not sustainable under
Section 69(2) of the Indian Partnership Act. The effect of
non-registration of the partnership firm under Section 69
of the Partnership Act is applicable only to cases involving
Civil rights and it has no application to Criminal cases.
Therefore, the contention of revision petitioner that the
prosecution in this case is not sustainable under Section
69(2) of the Indian Partnership Act is not acceptable.
4.The counsel for the revision petitioner submitted
that the above complaint is filed by one Abdurahiman as
the person who is authorised to sue on behalf of the firm
under the Partnership Deed. Subsequently the Partnership
Deed has been altered and another Abdul Rahiman who has
been examined as PW1 in this case has been authorised to
conduct the case on behalf of the partnership Firm.
Therefore, PW1 is incompetent to give evidence in this case
and there is no proper representation of the partnership
firm. But under the Partnership Act all partners are agents
of the partnership firm and therefore, every partner is
competent to represent the firm and to give evidence on
behalf of the firm. Hence this contention of the revision
petitioner is also not sustainable."
17. The next judgment that was relied upon by the learned counsel
for the petitioners is the case of Gurcharan Singh Vs. State of U.P. and
another reported in 2002(4) Crimes 165, referred Supra. The relevant
portions of the judgment is extracted hereunder:

"7. To appreciate the submission, the relevant part
of Section 69 of the Partnership Act necessary for the
purpose is extracted hereunder :
"69. Effect of nonregistration.-
(1) xxxxxxxxxxxxxx
(2) No suits to enforce a right arising from a contract shall
be instituted in any Court by or on behalf of a firm against
any third party unless the firm is registered and the
persons suing are or have been shown in the Register of
Firms as partners in the firm.
(3) xxxxxxxxxxxxxxxxxxxxx (4) xxxxxxxxxxxxxxxxxxxxx"
8. The aforesaid provision postulates that if a firm is not
registered one, it or anybody on its behalf cannot maintain
a 'suit' against a third party to enforce a right arising from
a contract. So, what is barred is a 'suit' that has been filed
to enforce a right arising from a contract. In other words,
the liability of a third person to the firm arising out of a
contract cannot be enforced by way of suit if the firm is
unregistered. The word 'suit' has not been defined in the
aforesaid Act. It is, therefore, desirable to refer to 'Law of
Lexicon' and the judicial pronouncements to ascertain the
true meaning of word 'suit' in the legal context. 'Suit'
means 'a proceeding Instituted in civil court by
presentation of a plaint. The word 'suit' ought to be
confined to such proceedings as, under that description,
are directly dealt with in the Code of Civil Procedure, or
such as by the operation of the particular Act which
regulates them are treated as suits (See Law of Lexicon,

1997 Edition). The word 'suit' in common parlance means a
process Instituted in a Court for recovery or protection of a
right, enforcement of a claim, or to redress civil injuries.
9. Section 142 of the Act under caption "Cognizance of
offences" provides that cognizance of the offence under
Section 138 can be taken upon a 'complaint' in writing made
by the payee or the holder in due course of the cheque.
The word 'complaint' defined in Section 2(d) of the Code of
Criminal Procedure means any allegation made orally or in
writing to a Magistrate, with a view to taking action under
the said Code, that some person, whether known or
unknown, has committed an offence, but does not include
a police report. Since Section 138 is a penal provision, that
prescribes punishment for bouncing of cheque on any of the
grounds mentioned therein, the Legislature in its wisdom
has used word 'complaint' and not 'suit' in Section 142
because a 'suit' can be maintained for recovery of money or
for any other civil remedies. So the bar created for
maintaining a suit in Section 69 of the Partnership Act by
an unregistered firm cannot be stretched and applied to
maintain a criminal proceeding under Section 138 of the
Act. In Amit Desai (supra) a Division Bench of Andhra
Pradesh High Court has taken the view that the firm being
not registered under the Partnership Act cannot maintain a
complaint under Section 138 of the Act. No discussion on
point of law involved was made by the learned Judges
except referring to Section 69 of the Partnership Act and
some decisions of the Apex Court. While disagreeing with

the view taken by the Kerala High Court that Section 69(2)
of the Partnership Act is applicable only where civil rights
are invoked, the learned Judges referred to Explanation to
Section 138 of the Act and observed "enforcement of legal
liability has to be in the nature of civil suit because the
debt or other liability cannot be recovered by filing a
criminal case and when there is a bar of filing a suit by
unregistered firm, the bar equally applies to criminal case
as laid down in Explanation (2) of Section 138 of the
Negotiable Instruments Act". A Division Bench of the Kerala
High Court in the case of Kerala Arecanut Stores v.
Ramkishore and sons and Anr. AIR 1975 Ker 144, having
made reference to various provisions of the Act regarding
rights/obligations arising out of a negotiable instrument
observed that the obligation of the drawer of the cheque
as well as the indorser to the indorsee who is the holder in
due course arises by virtue of statutory provision and there
being no privity of contract between the maker of a cheque
and the holder in due course, any right of action available
to such holder is not under any contract. So he is entitled
to sue on his cheque by reason of the right conferred upon
him by the statute. That being so, action under Section 138
is not a suit by the indorsee to enforce a right arising out
of a contract and, therefore, the bar under Section 69(2) of
the Partnership Act will not operate in such a case. To the
same effect is view of a learned singie Judge of the said
High Court in the case of Abdul Gafoor v. Abdurahiman,
1999 ISJ (Banking) 701. It is observed in the said case "the

effect of non-registration of the partnership firm under
Section 69 of the Partnership Act is applicable only to cases
involving civil rights and it has no application to criminal
cases."
10. In a recent judgment rendered by the Supreme Court in
B.S.I. Ltd. and another v. Gift Holdings Put. Ltd. and
another. 2000 (1) ACrR 683 (SC) : 2000 SCC (Cri) 538, the
word 'suit' came to be interpreted for deciding
maintainability of a proceeding under Section 138 of the
Act in view of the ban imposed by the Sick Industrial
Companies (Special Provisions) Act. Under Section 22(1) of
the aforesaid Act. it is provided that no suit for recovery of
money or enforcement of any security against the
industrial company or guarantee in respect of any loan or
advance granted to the industrial company shall lie if in
respect of an industrial company, an inquiry under Section
16 is pending or any scheme referred to under Section 17 is
under preparation or consideration or a sanctioned scheme
is under implementation or where an appeal under Section
25 relating to an industrial company is pending
adjudication. It was contended that the ban against
maintainability of a suit for recovery of money would
encompass prosecution proceedings also. Reliance was
placed on the meaning of the word 'suit' as given in
'Bouvier's Law Dictionary'. Repelling such contention, the
Court observed that the word 'suit' envisaged in Section
22(1) cannot be stretched to criminal prosecutions. A

criminal prosecution is neither for recovery of money nor
for enforcement of any security etc. Section 138 of the Act
is a penal provision the commission of which offence
entails a conviction and sentence on proof of the guilt in
duly conducted criminal proceedings. Once the offence
under Section 138 is completed, the prosecution
proceedings can be initiated not for recovery of the
amount covered by the cheque but for bringing the
offender to penal liability".
18. This Court is in complete agreement with the judgments
of the Kerala High Court and the Allahabad High Court. The action under
Section 138 of the Negotiable Instruments Act, is not a Suit to enforce a
right arising out of a contract, and therefore, the bar under Section 69(2) of
the Partnership Act will not operate in such a case. The word "Suit"
envisaged under Section 69(2) of the Indian Partnership Act, cannot be
stretched to criminal prosecutions. A criminal prosecution by its very
nature is instituted not for recovery of money or for enforcement of any
security. Section 138 of Negotiable Instruments Act is a penal provision, the
commission of which offence entails a conviction and sentence on the proof
of guilt. Chapter XVII of the Negotiable Instruments Act, 1881 is a code by
itself which deals with penalties in case of dishonour of cheques.

19. Section 141 of the Negotiable Instruments Act deals with the
concept of vicarious liability, wherein for the offence committed by the
Company or a partnership firm, the directors or the partners, as the case
may, are deemed to be guilty of the offence when it is shown that they are
in charge of and responsible for the conduct of the day-to-day affairs of the
business or the firm, as the case may be. While interpreting the provision,
the Hon'ble Supreme Court has categorically held that the complaint cannot
be maintained against the directors of the Company, without making the
company as an accused person. This concept has been extended even for
Partnership Firms. The registration or non-registration of the Partnership
Firm will have no bearing insofar as 141 of the Negotiable Instruments Act is
concerned.
20. In view of the above discussion, this Court is not in agreement
with the submissions made by the learned counsel for the respondent. In
this case admittedly, the cheque was given in the name of the Partnership
Firm and after the cheque was dishonored, no statutory notice was issued to
the Partnership Firm, and the Partnership Firm was not made as an accused
in the complaint. Only the partners have been shown as accused persons in
this complaint. Such a complaint is unsustainable and not in accordance

with Section 141 of the Negotiable Instruments Act and the law laid down
by the Hon'ble Supreme Court. Therefore, the proceedings will have to be
necessarily interfered with by this Court in exercise of its jurisdiction under
Section 482 of Cr.P.C. In the result the proceedings in C.C.No.550 of 2012,
pending on the file of the learned Judicial Magistrate No.I, Villupuram, is
hereby quashed and the Criminal Original Petition is accordingly allowed.
Consequently, the connected miscellaneous petitions are closed.
23.07.2019

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